A company is considering investment of k1,000,000 in a project. The following are the forecasts, after depreciation and tax. Year 1 Cash Inflows Discount Present Value Factor at 10% 1 10,000 0.9091 2 40,000 0.8265 3 60,000 0.7513 4 20,000 0.6830 5 - 0.6209 Compute: Payback period Discounted payback Net present value In all instances comment on the Decision criteria

A company is considering investment of k1,000,000 in a project. The following are the forecasts, after depreciation and tax. Year 1 Cash Inflows Discount Present Value Factor at 10% 1 10,000 0.9091 2 40,000 0.8265 3 60,000 0.7513 4 20,000 0.6830 5 - 0.6209 Compute: Payback period Discounted payback Net present value In all instances comment on the Decision criteria

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 4CMA

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Assume San Lucas Corporation in MAD 26-1 assigns the following probabilities to the estimated annual net cash flows: a. Compute the expected value of the annual net cash flows. b. Determine the expected net present value of the equipment, assuming a desired rate of return of 10% and the expected annual net cash flows computed in part (a). Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Based on your results in parts (a) and (b), should San Lucas Corporation invest in the equipment?
Foster Manufacturing is analyzing a capital investment project that is forecasted to produce the following cash flows and net income: After-Tax Cash Flows $(20,000) Net Income Year 1 6,000 2,000 6,000 8,000 2,000 3 2,000 8,000 2,000 Using the present value tables provided in Appendix A, the internal rate of return (rounded to the nearest whole percentage) is: а. 5%. b. 12%. C 14%. d. 40%.
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